Economic Analysis TOPIC:

Capitalism vs Socialism SUBMITTED TO:

MAM. FARAH

SUBMITTED BY:
MUHAMMAD EJAZ MPA-III 2010-2012

Quaid-i-Azam University,Islamabad.
1

What is the Difference between Capitalism and Socialism? Capitalism

is an economic system where resources whether monetary or otherwise are privately owned, Capitalism is founded on the belief that competition brings out the best in people Capitalism is the worlds dominant economic system. Within it, the means of production & distribution are owned by individuals. Property is concentrated into the hands of relatively few well-off people, leaving the many with nothing & at the mercy of the rich for work, charity, etc. In capitalist system Society is ruled by individual. In a capitalist society, each person owns their own labor. This labor can be sold to employers for a fee Capitalists also tend to believe that if people will get the same products and care as everyone else regardless of how hard they work, then people will lose their desire to work.

Socialism
is a system where goods are owned by the state or the public. Socialism, believes that cooperation is the best way for people to coexist. Socialism seeks to redistribute wealth & to ensure that the means of production are at the service of the whole of society, so that all can benefit & none will go without. Socialist economies are planned, which means that problems can be foreseen & prevented. In socialist system, Society is ruled by the sate. In socialism, everyone works for the good of everyone else, and there is no market. That is to say that everyone can get what they need when they need it, and there is no reason for them to pay for it.

Proponents of socialism believe that a socialistic society is the best way to care for everyone. They claim that if people worked for everyone else and received everything they needed, then their work ethic would increase

History of capitalism
1854, "condition of having capital;" from capital + -ism. Meaning "political/economic system which encourages capitalists" is recorded by 1877. An economic and political system characterized by a free market for goods and services and private control of production and consumption. Capital evolved from Capitale, a late Latin word based on proto-Indo-European caput, meaning "head"also the origin of chattel and cattle in the sense of movable property (only much later to refer only to livestock). Capitale emerged in the 12th to 13th centuries in the sense of funds, stock of merchandise, sum of money, or money carrying interest. By 1283 it was used in the sense of the capital assets of a trading firm. It was frequently interchanged with a number of other wordswealth, money, funds, goods, assets, property and so on. The term capitalist refers to an owner of capital rather than an economic system, but shows earlier recorded use than the term capitalism, dating back to the mid-seventeenth century. The Hollandische Mercurius uses it in 1633 and 1654 to refer to owners of capital. In French, tienne Clavier referred to capitalistes in 1788, six years before its first recorded English usage by Arthur Young in his work Travels in France (1792). David Ricardo, in his Principles of Political Economy and Taxation (1817), referred to "the capitalist" many times.

History of socialism
Socialism
1. A theory or system of social organization that advocates the vesting of the ownership and control of the means of production and distribution, of capital, land, etc., in the community as a whole. 2. Procedure or practice in accordance with this theory. 3. (In Marxist theory) the stage following capitalism in the transition of a society to communism, characterized by the imperfect implementation of collectivist principles. An economic system in which the production and distribution of goods are controlled substantially by the government rather than by private enterprise, and in which cooperation rather than competition guides economic activity. There are many varieties of socialism. Some socialists tolerate capitalism, as long as the government maintains the dominant influence over the economy; others insist on an abolition of private enterprise. All communists are socialists, but not all socialists are communists. 3

The English word socialism (1839) derives from the French socialisme (1832), the mainstream introduction of which usage is attributed, in France, to Pierre Leroux, and to Marie Roch Louis Reybaud; and in Britain to Robert Owen in 1827, father of the cooperative movement. Socialist models and ideas espousing common or public ownership have existed since antiquity. Mazdak, a Persian communal proto-socialist, instituted communal possessions and advocated the public good. And it has been claimed, though controversially, that there were elements of socialist thought in the politics of classical Greek philosophers Plato and Aristotle. Socialism ,general term for the political and economic theory that advocates a system of collective or government ownership and management of the means of production and distribution of goods. Because of the collective nature of socialism, it is to be contrasted to the doctrine of the sanctity of private property that characterizes capitalism. In a broader sense, the term socialism is often used loosely to describe economic theories ranging from those that hold that only certain public utilities and natural resources should be owned by the state to those holding that the state should assume responsibility for all economic planning and direction. In the past 150 years there have been innumerable differing socialist programs. For this reason socialism as a doctrine is ill defined, although its main purpose, the establishment of cooperation in place of competition remains fixed.

Economic System of Pakistan

In Pakistan, we have neither of the two extreme systems but our economic system is a via media compromise of both the systems of capitalistic and socialistic patterns. It can safely be said that it is a mixed economy.

Concept of Mixed Economy

Mixed Economy is an economic system, which combines in itself the elements of socialism as well as of capitalism. It is an economic system, which is planned and directed partly by the state and by private enterprise. Under the Mixed Capitalist System or Mixed Enterprise System, both State and private institutions exercise economic control.

Salient Features of Economic System of Pakistan:

1. Co-Existence of the Public and Private Sectors:
In the economy both public sector and the private sector function together. In one part are those industries, the responsibility for the development of which is entrusted to the state and they are owned and managed by the state. Other industries are left under the authority and control of the private entrepreneurs. 4

2. Role of Price System And Government Directives:

So far as the public sector is concerned, economic decisions relating to production, prices and investment are made by the government or authorities appointed by the government. In industries in the private sector, the decisions regarding investment, production, prices, etc, are made by private entrepreneurs with the object of making maximum profit on the basis of the price system.

3. Government Regulation and Control of Private Sector:

In a mixed economy, the government adopts necessary measures to regulate and influence the private sector, so that it may function in the interests of the nation rather than exclusively in the interests of the private entrepreneurs.

4. Consumers Sovereignty Protected:

The consumers are free to buy commodities of their choice and the private entrepreneurs produce commodities according to consumers demand or preferences, although the government can control their prices in public interest so that they can be prevented from rising unduly high. Besides, the government can also ration the commodities in short supply so that the limited available quantities can be fairly distributed.

5. Government Protection of Labour:

In a mixed economy, Government saves labour from exploitation by the exploitation by the capitalists. Several factory acts have been passed to regulate the working conditions of labour. The government also takes necessary steps to prevent industrial disputes.

6. Reduction of Economic Inequalities:

The governments in mixed economics take necessary steps for the reduction of inequalities of income and wealth for promoting social justice and social stability and social welfare, increasing production and for providing equal opportunities for all.

7. Control of Monopoly:
A charge against monopolies is that they reduce output and raise prices in order to get maximum profit leading to miss-allocation of productive resources of the community, economic inequalities, and unemployment and hampering of industrial development. The government tries to control and regulate monopolies in order to remove the above evils and make them function in public interest. Also, when the government considers it necessary in public interest, it takes over monopolies and operates them in public interest.

8. Government Provision of Public Services:

The government provides certain indispensable public services without which community life would be unthinkable and which by their nature cannot appropriately be left to private enterprises. Examples are the maintenance of national defense, of internal law and order and the administration of justice etc

A QUICK COMPARISON
OF CAPITALISM, SOCIALISM AND THE "JUST THIRD WAY"

capitalism
Political power accessible to all; economic power concentrated in a wealthy elite Capital ownership concentrated in a wealthy elite Capital incomes beyond consumption capacity for a wealthy elite individualistic, atomistic system (ignores or trivializes common good) institutionalizes greed Sacrifices justice for efficiency Equality of opportunity to work; inequality of opportunity to own Prices and wages protected from global competition; promotes mercantilism Capital credit available to a few; consumer credit available to the many Past savings used to finance future ownership by few

socialism
Economic and political power concentrated in a governing elite Capital ownership concentrated in a collective controlled by a bureaucratic elite Adequate and secure incomes from capital for a governing elite Collectivist system (denies economic freedom and independence of individual) Institutionalizes envy Sacrifices efficiency for collectivist "justice" Forced duty to work and forced equality of results as determined by governing elite Prices and wages controlled by government All credit controlled by state Past savings used to finance future ownership by state

Just third way

Both economic and political power are accessible to all Capital ownership is systematically deconcentrated and made accessible to every person Adequate and secure capital incomes accessible to every person System based on sovereignty of every person within institutions embodying principles of social justice Institutionalizes justice Justice and efficiency go handin-hand Equality of opportunity to work; equality of opportunity to own Prices, wages and profits set by free and open markets with profits spread among many owners Access to capital credit universalized and allocated by local financial institutions Pure credit, future savings and capital credit insurance used to finance growth linked to future ownership opportunities for all Technology owned and controlled by private sector entities that are accountable to many shareholders and stakeholders Purpose of education is to teach people how to become life-long learners and virtuous human beings, with the capacity to adapt to change, Economic power of the state is limited (e.g., preventing abuses and monopolies, and dismantling barriers to universal participation in capital ownership)

Technology controlled by a private sector elite, subject to government oversight Purpose of education is to train people to get jobs

Technology controlled by a non-accountable governing elite Purpose of education is to train people to get jobs

Hands-off" role of the state regarding monopolization of ownership and control; state ends up redistributing wealth and incomes

Economic power is totally centralized in or regulated by the state; state redistributes incomes